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A $5000 investment today will return $1,313 each year for the next four years with the...

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Finance

A $5000 investment today will return $1,313 each year for thenext four years with the first payment starting in one year. TheNPV of this investment is negative at your required return of 2.5%.Which of the following is closest to the internal rate of return onthis project?

2%

4%

1%

3%

Answer & Explanation Solved by verified expert
4.3 Ratings (557 Votes)

Ans 2%

Year Project Cash Flows (i) DF@ 2% DF@ 2% (ii) PV of Project ( (i) * (ii) )
0 -5000 1 1                      (5,000.00)
1 1313 1/((1+2%)^1) 0.980                       1,287.25
2 1313 1/((1+2%)^2) 0.961                       1,262.01
3 1313 1/((1+2%)^3) 0.942                       1,237.27
4 1313 1/((1+2%)^4) 0.924                       1,213.01
NPV                                   0
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